By Craig McAvinue – 5 September, 2023
“It’s not whether you are right or wrong that's important, but how much money you make when you’re right and how much you lose when you are wrong.”
August was somewhat of a yo-yo month. The first half saw some declines in markets generally, then a rebound in the second half, leaving the overall month in negative territory, albeit with just modest drops.
Data table is from Google Finance
On the foreign exchange front, the USD was up slightly against its counterparts, as is often the case when markets move downwards.
Data table is from Google Finance
All in all, a negative month for the first time in quarter two as investors realized some of 2023’s gains, especially during the first two weeks. On the other hand, the markets managed a much stronger second half, with 28 August seeing the S&P’s biggest single day gain of the quarter. Reasons for this mini-spike included labour data reflecting fewer job openings and therefore easing labour market pressures, along with interest rate futures signalling a strong likelihood that future increases will be paused for the next couple of months.
The laggard in the last month was in Emerging Markets, in particular China. The Hang Seng Index, which is made up mostly of companies from China’s mainland, slipped into bear market territory, at 21% lower than its previous high. While some reports suggest that the consumer spending spike in the wake of the extreme “Zero Covid” measures signals a return to normalcy, some troubling underlying issues prevail: lower exports, annual growth below the government’s 5% target and a looming real estate crisis, with huge property companies such as Evergrande and Country Garden in a state of significant distress.
Emerging Markets are always going to be considered more risky than Developed Markets. Volatility is greater, so while the rewards can be higher, so too can the losses. Stocks in general as an asset class are also inherently risky. Of course, that risk can be reduced by using professional managers to ensure the right level of diversification to align with individual risk profile, time horizon, etc.
Diversifying across asset classes is also an important aspect of managing your overall wealth. Property is a popular asset class, where the old adage “location, location, location” is often quoted as being the key to success, although the market pricing clearly knows that and so places in wonderful locations invariably cost more.
The UK housing market fell 5.3% in September, the largest monthly fall since 2009. This is not a surprise given the interest rate rises that are causing mortgage costs to increase. There has been an increase in demand for properties at the lower end of the market. The select few who are lucky enough to be cash buyers in this sector were able to take advantage of the dip.
Owning assets other than stocks works well as a hedge when markets are falling, but it doesn’t guarantee success. Property and alternative assets can fall or rise in value in line with the stock markets, or on their own timetable. However, using these diversifying strategies does work over time.
It’s almost axiomatic that high risk equals high rewards, while low risk equals lower returns, but many low risk investments do go wrong, and risk can be mitigated when entering into inherently higher risk opportunities.
Managing risk is an important part of any advisor’s job and insurance is a critical risk management tool. We provide both financial and insurance services, so have insight into both protecting and growing your assets.
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Our goal is to provide you with the information you need to make informed decisions. Whether you’re exploring insurance or investments, these articles are designed to help. If you still have questions or are ready to take the next step, our team is here to assist you.
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